Directors’ duties and liability in a Korean company

Why the board matters more than foreign owners think

In a Jusik Hoesa (주식회사, jusik hoesa) the directors are not employees with titles. They are officers appointed by the shareholders, registered on the public corporate register, and responsible under the Commercial Act for how the company is run. The representative director (대표이사, daepyo isa) signs for the company, registers its seal, and is the person Korean authorities pursue when wages go unpaid, tax returns are wrong or a worker is killed. Foreign groups that appoint directors for convenience — a head-office executive who never visits, a Korean accountant who lends his name — discover these consequences at the worst moment: a labour complaint, a tax audit, an accident, an insolvency.

Korean corporate law has also been moving fast. In 2025 the National Assembly amended the Commercial Act twice to strengthen shareholder protection, and in March 2026 a third time on treasury shares. Most of the changes target listed companies, but the most important — the directors’ duty to shareholders — applies to every Jusik Hoesa, including wholly owned subsidiaries of foreign groups. This guide covers the private-company position first and notes where listed-company rules differ. For the company forms themselves, see Jusik Hoesa or Yuhan Hoesa.

The board: composition and powers

A Jusik Hoesa must have at least three directors under Article 383 of the Commercial Act, but a company with capital of less than KRW 1 billion may have one or two. In that case there is no board: the matters the Act reserves to the board go to the shareholders’ meeting, and a sole director represents the company. Directors are elected by the shareholders’ meeting for terms of up to three years and can be removed by special resolution at any time, with damages if removed without just cause before the term ends. The board elects the representative director, unless the articles give the choice to shareholders, and can appoint more than one, acting jointly or severally.

There is no nationality or residence requirement for directors or the representative director; a foreign group can staff the board entirely with its own executives abroad. Non-resident directors sign notarised and apostilled acceptances of appointment and file a seal or signature certificate, and the representative director’s address appears on the register. Banks and tax offices, however, prefer a representative director they can meet, and many practical steps — opening accounts, certificates for electronic filing, signing at the registry — are slower when nobody on the board lives in Korea. See registering a company and bank accounts.

The board decides on management matters not reserved to shareholders: major asset disposals and borrowings, appointment of managers, branches, issuing shares and bonds where the articles allow, and approval of conflicted transactions. Board resolutions need a majority of directors in office present and a majority of those present voting in favour, and a director with a special interest may not vote. Directors may participate by video or telephone if the articles do not prohibit it. Minutes must record the agenda, proceedings, results and dissent, signed or sealed by the directors present; a director who does not record his objection is presumed to have agreed. A company with capital of KRW 1 billion or more also needs a statutory auditor; smaller ones may omit it, in which case the shareholders’ meeting performs the auditor’s functions.

Listed companies have further rules on independent directors, audit committees and cumulative voting.

The duties

The relationship between the company and its directors is a mandate, so directors owe the duty of care of a good manager under Article 382(2) of the Commercial Act and the Civil Act — the care a reasonable person in that position would exercise. It includes a duty to supervise (감시의무, gamsi uimu): directors must monitor the representative director and other directors and build internal control systems suited to the business. In a January 2026 decision the Supreme Court held that compliance systems that exist only on paper do not discharge that duty, and that penalties the company paid to a foreign regulator could be damages caused by the failure.

The duty of loyalty in Article 382-3 required directors to perform their duties faithfully for the company. The amendment passed on 3 July 2025 and in force from 22 July 2025 rewrote it: directors must act faithfully for the company and its shareholders (회사 및 주주, hoesa mit juju), protect the interests of all shareholders and treat them fairly. It was aimed at listed groups whose controlling families restructured affiliates at minority shareholders’ expense, but it applies to every Jusik Hoesa. For a wholly owned subsidiary it changes little; for a Korean joint venture or a subsidiary with Korean minority investors, it gives minority shareholders a direct argument that the board favoured the foreign parent.

• Non-competition — a director may not, without board approval, trade on his own or a third party’s account in the company’s line of business or become a partner or director of a competing company (Article 397).
• Corporate opportunities — a director may not, without approval by two-thirds of all directors, use for himself or a third party a business opportunity that belongs to the company or that he learned of through his duties (Article 397-2).
• Self-dealing — transactions between the company and its directors, major shareholders, their relatives or companies they control need prior disclosure and approval by two-thirds of all directors, and the terms must be fair (Article 398). Since April 2012 this covers major shareholders and their affiliates — for a foreign subsidiary, its parent and sister companies.
• Confidentiality — directors must keep company secrets during and after their term.
• Reporting — a director who discovers a matter that may cause significant loss to the company must report it to the auditor immediately.

Liability to the company

A director who violates the law or the articles, or neglects his duties, is liable to the company for the resulting loss under Article 399, jointly and severally with other directors at fault. Directors who voted for a resolution that caused the loss are liable as if they had acted, and those present who did not record dissent are presumed to have voted for it. The company can release a director entirely only with the consent of all shareholders. Since 2012 the articles can cap a director’s liability at six times his annual remuneration for the previous year — three times for outside directors — under Article 400(2), but not for intentional or grossly negligent conduct or for breaches of the non-compete, corporate opportunity and self-dealing rules.

Korean courts apply a business judgment rule (경영판단의 원칙, gyeongyeong pandan-ui wonchik) developed in case law, mostly in breach-of-trust prosecutions: a director is not liable for a decision that turns out badly if he gathered sufficient information, acted in good faith in the company’s interest, did not reach an obviously unreasonable conclusion and did nothing unlawful. The rule protects informed judgment, not instructions followed without thought — which is the point for subsidiaries where directors simply implement head-office decisions.

Shareholders can enforce the company’s claim. Under Article 403 a shareholder holding 1% of the shares — 0.01% held for six months in a listed company — can demand that the company sue a director and, if it does not within 30 days, sue on its behalf. Since December 2020 shareholders of a parent company can bring a multiple derivative suit against directors of its subsidiary on similar terms. In a joint venture with a Korean partner, these rights are the partner’s main weapon against directors appointed by the foreign side.

Liability to creditors and others

Directors are personally liable to third parties — creditors, customers, employees, shareholders for their direct losses — where they neglected their duties intentionally or with gross negligence, under Article 401. The classic cases are directors who let an insolvent company keep taking orders and deposits, who approved false financial statements on which lenders relied, or who allowed the company’s assets to be stripped. Shareholders cannot use the provision to recover the fall in value of their shares that mirrors the company’s loss; that belongs to the company.

The corporate veil itself is rarely pierced in Korea: the Supreme Court requires a mixing of the parent’s and subsidiary’s assets and business and an intention to evade obligations, and has held that 100% ownership, shared staff and thin capital are not enough on their own. Creditors therefore aim at directors — and at those who stand behind them.

Shadow directors: when head office becomes liable

Article 401-2 treats three kinds of person as directors for the purposes of liability to the company and third parties: anyone who uses his influence over the company to instruct a director to carry out business; anyone who carries out the company’s business himself in a director’s name; and anyone who is not a director but uses a title such as chairman, president, vice-president or executive director that suggests authority to run the company. The Supreme Court held in 2006, in a case involving KT and its subsidiary, that a parent company can be an instructing de facto director. In December 2025 it held that claims against such persons are not subject to the short limitation period for torts.

For a foreign group this is the central risk. A regional head office that instructs the Korean directors to transfer funds, write off receivables from affiliates, keep trading while insolvent or sign unfavourable intercompany agreements can be liable alongside them. The defence is the same as for the directors themselves: decisions taken by the Korean board on information it has, recorded in minutes, with intercompany terms that can be justified as arm’s length — not emails from head office that the Korean directors execute. A head-office executive who signs Korean contracts with the title “CEO, Korea” but is not registered as a director is a de facto director by title alone.

Nominee directors

Some foreign owners appoint a Korean national as director or representative director only to satisfy banks or practical needs, with an understanding that he will sign what he is sent. Korean law does not recognise the arrangement. A nominal director is still a director: he is liable for failing to supervise, Korean courts have refused to excuse directors who lent their names, and the person who actually instructs him is liable under Article 401-2. A nominee also controls the company’s seal and registered authority — and disputes in which a nominee refuses to resign or uses the seal for himself are a recurring kind of litigation. If a local signatory is needed, appoint a real director with defined authority, reporting duties and remuneration, or use a manager with registered limited authority rather than a figurehead.

Criminal exposure

Korean prosecutors charge directors more readily than European or American ones, and the representative director is the natural defendant.

• Breach of trust — a director who, in breach of his duties, causes loss to the company for his own or a third party’s gain commits occupational breach of trust (업무상 배임, eommusang baeim) under Article 356 of the Criminal Act, punishable by up to ten years’ imprisonment or a fine of up to KRW 30 million; if the gain is KRW 500 million to 5 billion, the Act on Aggravated Punishment of Specific Economic Crimes imposes at least three years, and at KRW 5 billion or more at least five years or life. The Commercial Act has its own special breach of trust offence for directors. Intercompany transactions on non-arm’s-length terms, guarantees for affiliates without consideration and loans to failing group companies are typical charges.
• Wages — failing to pay wages and severance within 14 days of an employee leaving, without agreement to extend, is an offence under the Labor Standards Act punishable by up to three years or KRW 30 million, prosecuted against the employer’s responsible representative. Labour offices act on employee complaints within weeks; see hiring in Korea.
• Tax — tax evasion is punishable under the Punishment of Tax Evasion Act by up to two years or twice the evaded tax, more for large amounts, and the Act punishes both the individual who acted and the company. Annual evasion of KRW 500 million or more is an aggravated offence.
• Workplace safety — the Serious Accidents Punishment Act, applying to all businesses with five or more workers since 27 January 2024, makes the person who represents and runs the business liable to at least one year’s imprisonment or a fine of up to KRW 1 billion if a worker dies because safety and health management obligations were not met, and up to seven years or KRW 100 million for serious injuries; the company can be fined up to KRW 5 billion.
• Accounts — false financial statements are punishable under the External Audit Act by up to ten years, with fines linked to the gain, and the provision reaches de facto directors.

Secondary tax liability is sometimes confused with director liability. Under Article 39 of the Framework Act on National Taxes it falls on oligopolistic shareholders (과점주주, gwajeom juju) — those who, with related parties, hold more than half the shares and exercise control — in proportion to their shareholding when the company cannot pay its taxes, not on directors as such. A foreign parent that owns its Korean subsidiary outright is therefore exposed for the subsidiary’s unpaid national taxes; its directors are exposed through the criminal and civil rules above.

Formalities that create personal fines

Changes of directors, the representative director and his address must be registered within two weeks; late registration is punished by an administrative fine imposed on the representative director personally, typically up to KRW 5 million. Directors’ remuneration must be fixed by the articles or a shareholders’ resolution under Article 388; the meeting may set a total and let the board allocate it, but pay without such a basis is void and recoverable, and severance for directors needs its own basis in the articles or a resolution. Annual financial statements must be approved and the balance sheet published, shareholders’ meetings held, and minutes kept. None of this is difficult; all of it is personal to the representative director when missed. See the annual compliance calendar.

Protecting directors

1. Appoint people who can do the job: at least one director who lives in Korea, understands the business and has the authority to stop things.
2. Decide in Korea, on paper: board or shareholder resolutions for material decisions, with the information considered and any dissent recorded.
3. Approve related-party transactions properly, with transfer-pricing support, by the majority the Act requires.
4. Cap liability in the articles at six or three times pay, and buy D&O insurance — listed companies increasingly do, and foreign groups can usually extend their global policy to Korea.
5. Watch the personal-liability deadlines: wages and severance, tax filings, social insurance, registrations.
6. Build a real safety system if the company has five or more workers, especially in factories, warehouses and on sites.
7. Give resigning directors a clean exit: register the change promptly, and indemnify them for decisions taken at head office’s request.

A worked example

A Dutch industrial group’s Korean subsidiary has capital of KRW 800 million and two directors: the group’s Asia-Pacific CFO in Singapore as representative director, and a Korean sales manager. Head office instructs the subsidiary to extend 180-day credit to a distressed affiliate in Vietnam and to pay a management fee set by a global allocation key. The Korean company then loses its main customer, and a Korean supplier is left with KRW 900 million unpaid when the subsidiary stops trading.

The supplier sues both directors under Article 401, arguing that they kept ordering on credit when they knew the company could not pay, and the parent under Article 401-2 as the instructing director. Two employees complain to the labour office about unpaid severance, and the representative director — who has never been to the Seoul office — receives a summons. With no board, the credit and the fee were approved only by the parent as sole shareholder, without price support. Had the subsidiary documented its own decisions, priced the fee and credit at arm’s length, and stopped trading when the cash ran out, the directors would have had a business judgment defence; as it is, they settle.

Mistakes we see

1. A representative director abroad who is personally liable for things he never sees.
2. Nominee directors as a convenience — and later as a hostage situation over the seal.
3. Head-office executives with Korean titles who are not registered, and are de facto directors anyway.
4. Intercompany transactions without approval or pricing support.
5. Director pay without a shareholders’ resolution.
6. Late registration of director changes and addresses.
7. No safety management system in a company with five or more workers.
8. Trading on while insolvent at head office’s request.

Korean terms you will meet

Questions readers ask

About the author

Alexander Baranov

Founder of the BCA Group · cross-border corporate and tax adviser since 2008

Alexander advises foreign founders and groups on company formation, tax structuring and corporate law in more than 40 jurisdictions across Europe, the Gulf, Asia and Latin America. He is the author of nine books on international business and tax and writes regularly for professional finance and tax journals. He works in English, German, Spanish and Russian.

This guide is based on the Korean statutes cited in the text and on our own filings. It is reviewed when the law or official rates change.

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